Are Billion-dollar Markets Better Than Million-dollar Markets?

Kapso 9th May, 2020

As an investor, I see a lot of pitches—some bad; some good, some funny, some sad. Many take a cringe-worthy turn for the graver at some point during their short-lived journey. More often than not, this happens around the “competition” or the “go-to-market strategy” slide. Why do so many founders misstep at this crucial juncture? One big reason has to do with investors signalling bias, which favours targeting billion-dollar markets. sell business

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Business Plans Often Neglect How to “Cross the Chasm”

Geoffrey Moore offers a compelling solution for this problem in his classic: Crossing the Chasm. Moore segments customers based on the likelihood of adopting new technology and provides a framework for overcoming a dire pattern common to many startups: rapid initial adoption followed by stagnation and—ultimately—failure. It’s not rare for a startup to go to market with a novel product or service and experience wild growth initially. This, in Moore’s terminology, is driven by the Innovators and Early Adopters, who just gotta have it the minute “it” drops. However, these customer segments represent a fraction of the overall market. The real prize is in getting the Early and Late Majority to adopt. But herein lies the rub: Innovators and Early Adopters adopt new technology to be at the forefront of a trend and tend not to have a reference group—a customer segment to which they look to validate a purchase. The Early Majority, however, does have a reference group: itself. Members of the Early Majority reference other members of the Early Majority to validate a purchase decision and look to buy from established market leaders. This dynamic results in the namesake chasm—the gap between Early Adopters and the Early Majority. Entrepreneurs fly over the chasm when pitching and pitch into the chasm while trying to fly.

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There are plenty of examples of successfully navigating this approach to go-to-market. Tesla, for example, focused intensely on the luxury auto market, differentiating from the competition through an appealing, clean, electric alternative. Given the price point of the luxury auto industry (the Roadster base price was ~$100,000 in 2008), the overall market was still pretty big (~$245 million, given the 2,450 Roadsters produced). But prior to Tesla entering the market, there were few—if any—electric alternatives; therefore, Tesla dominated the entire market, which at the time was not a billion-dollar market. buy existing business in india

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Billion-dollar Markets Are Never Underserved

In his book Zero to One, Peter Thiel indirectly articulates the hidden truth to billion-dollar markets while discussing the competition. Thiel posits that a lucrative monopoly is more inclined to draw scrutiny from regulators, so monopolists downplay their position and “lie to protect themselves.” This is how entrepreneurs tend to get it wrong. First, a multibillion-dollar market opportunity is presented. The founders then proceed to argue that their widget—and their widget alone—can capture substantial market share, but investors don’t buy it, the pitch ends, and the entrepreneurs walk away empty-handed. And why don’t investors succumb to the allure? Because they know intuitively what Thiel states explicitly: Billion-dollar markets attract intense deep-pocketed competition with seemingly endless resources compared to the would-be disruptors (if only you invest in their Series A!). businesses to buy in pune

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Beachheads Are Created in Smaller Markets

Million-dollar markets are uninteresting to large firms competing in billion-dollar markets—the spoils are too small and simply don’t move the needle. For startups, however, market opportunities measured in millions could breed opulence for the founders if exploited effectively. Setting aside the opportunity for a significantly enhanced lifestyle, million-dollar markets offer an additional benefit: a platform of execution. Focusing intently on small markets allows small firms to drive learning cycles and gain market experience without worrying about competition. Often referred to as the “beachhead,” it is from this platform that a small firm can launch attacks upmarket, targeting more attractive segments. Note that “upmarket” does not necessarily imply increased cost to the firm. For example, Tesla’s initial focus was on high-end car enthusiasts who were willing to support a purchase price of more than $100,000, but the real prize in the auto industry lies in volumes. As such, notwithstanding lower prices, “upmarket” refers to the size of the overall market opportunity.

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Get Your Go to Market Strategy Right

Successfully navigating from million- to billion-dollar markets is predicated on developing a sound, rational go-to-market strategy. Delivering a compelling solution to a significant unmet market need drives rapid adoption. Doing so within a socially networked group of customers drives rapid segment expansion, forming a leadership “halo” perspective, which becomes a flywheel for attacking larger market segments. Continually iterating and improving on the solution enables rapid market expansion. buy business india

If you want to get funded, pitch millions, not billions. If you want to get from millions to billions, find a common thread that will drive organic demand and give it everything you’ve got. buy existing business in india

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